HCA prices billion-dollar deal; InSight Health bonds dive on Medicare concerns

By Paul Deckelman and Paul A. Harris

New York, Feb. 3 - Healthcare seemed to be where the action was on Friday, junk market participants said. In the primary market, Nashville-based hospital operator HCA Inc. brought a $1 billion offering of 10-year bullet notes to market, capping off a week which also saw offerings from such familiar high-yield issuers Chesapeake Energy Corp., Sanmina-SCI Corp. and Grupo Corporativo ONO SA as well as Ineos Group Holdings plc, Indalex Aluminum Solutions and Covalence Specialty Materials, among others.

In the secondary arena, meantime, InSight Health Services Holding Corp. "was the ride of the day," a trader said, seeing the bonds of the Lake Forest, Calif.-based provider of diagnostic imaging services fall sharply amid concern over the impact expected cuts in Medicare reimbursements are likely to have.

Several other companies in that same field, including Radiologix Inc. and Alliance Imaging were also seen down points on similar concerns.

One buy-side source told Prospect News that the broad high-yield market had a pretty decent tone on Friday.

"We're hanging in there," the source said. "When Treasuries went down we still had a pretty good bid. A lot of spreads tightened.

"For the day we're probably going to be a little wider, but there is demand out there and a pretty good tone."

Meanwhile in the primary market $1.3 billion priced in a pair of dollar-denominated tranches, the biggest from Nashville, Tenn., hospital management company HCA Inc.

HCA prices $1 billion

HCA priced a $1 billion issue of 6½% 10-year senior notes (Ba2/BB+) at 99.57 on Friday to yield 6.559%. The notes came at a spread to Treasuries of 200 basis points, on top of the price talk.

Citigroup, Banc of America Securities, Deutsche Bank Securities, JP Morgan, Merrill Lynch & Co. and Wachovia Securities were joint bookrunners for the debt refinancing deal.

A buy-side source said that the deal had basically gone as expected.

"They gave you about a 10 basis points concession, and [the new bonds] are trading wrapped around 200.

"In the 10-year part of this curve it's very flat," the source added.

"But the company has demonstrated the ability to keep those double-B metrics. And their ability to issue debt at 200 over is good for them.

"These guys have maturities due every year or so. They are going to be a continual issuer."

This source said that the deal was heard to have been oversubscribed, but discounted that color.

"They issued it like an investment-grade deal," the source said. "So once it was full they just cut the book off.

"It's not like a high-yield deal where they do a five-day roadshow and wait until there is 10 times the demand and then price it."

CMA-CGM upsized, tight to talk

Also pricing a dollar-denominated issue on Friday was French container ship company CMA-CGM SA, which completed an upsized $300 million issue of seven-year senior notes which priced at par on Friday yield 7¼%.

The non-rated notes came at the tight end of the 7¼% to 7½% price talk.

BNP Paribas ran the books. The proceeds will be used to finance the purchase of new container vessels.

The issue was upsized from $250 million.

Earlier in the week a source close to the deal said that the non-rated notes were playing to a "mixed bag" of high-yield accounts, crossover accounts and banks.

A $4 billion week

Friday's HCA drive-by mega-deal took the week's tally of dollar-denominated new issuance to $4.1 billion in nine tranches, down substantially from the previous week's $5.8 billion in 10 tranches.

Following the Friday close, year-to-date issuance stood at $17.8 billion in 35 tranches, $1.5 billion ahead of the $16.3 billion that had priced by the Feb. 3, 2005 close. In terms of deal count, however, 2006 - which has seen a good deal of its dollar volume come in the form of billion-dollar plus mega-deals - now trails 2005 by 20 tranches.

"We had a big January," one high-yield syndicate official said late Friday.

However, the source added, the forward calendar is clearing out, and the market may be poised to take a breather for a couple of weeks.

Altra converts to sterling

Also on Friday, Altra Industrial Motion, Inc., a mechanical power transmission company from Quincy, Mass., converted its seven-year senior notes to a £33 million sterling-denominated issue from a $55 million dollar-denominated issue.

The company priced the notes (Caal/CCC+) at par on Friday to yield 11¼%, on the wide end of the 11% to 11¼% price talk.

Jefferies & Co. ran the books for the Rule 144A with registration rights transaction. Jefferies International Ltd. led the Regulation S portion of the deal.

A light calendar

No news of pending roadshow starts surfaced during the Friday session, leaving just $1.25 billion of business on the new issue calendar, all of it expected to price before the end of the Feb. 6 week.

Nor was there very much news on deals known to be in the market.

Windsor Financing LLC is talking a $50 million tranche of 10-year subordinated amortizing notes at a 240 to 245 basis points spread to Treasuries.

The subordinated notes (Ba2/BB) come with a 7.1-year weighted average life.

They are part of an overall $316 million two-tranche transaction being led by Goldman Sachs & Co., which is expected to price on Tuesday.

An investment-grade $266 million offering of senior amortizing notes due July 2017 (Baa3/BBB-) is talked at Treasuries plus 140 to 145 basis points.

Other business for the Feb. 6 week includes:

• Linens 'n Things Inc.'s $650 million eight-year senior secured floating-rate notes (B3/B) via Bear Stearns and UBS (a buy-side source, characterizing the deal as "a quasi-bank loan," said the notes are pro forma-ed at Libor plus 550 basis points);

• Drummond Co. Inc.'s $400 million 10-year senior notes (Ba3/BB-) via Citigroup and Merrill Lynch (pro forma is 7%, according to the buy-sider); and

• Stratos Global Corp.'s $150 million of years senior notes (B2/B-) via RBC Capital Markets and Banc of America Securities (pro forma 9½%, the buy-sider said).

Also expected to price is Fiat Finance & Trade Ltd.'s €750 million minimum of seven-year eurobonds (Ba3/BB-) via Citigroup, Barclays Capital, BNP Paribas and UniCredit Banca Mobiliare.

It will be the Turin, Italy-based auto maker's first bond deal since it lost its investment grade credit ratings.

The roadshow is expected to wind up on Monday in Frankfurt and Zurich.

HCA steady in trading

When the new HCA 6½% notes due 2016 were freed for secondary dealings, they pretty much stayed around their issue price.

A trader noted that the bonds - which were quoted on a spread versus Treasuries basis - "about broke even," widening to about 204/202 basis points to the 10-year Treasury issue, versus the 200 bps spread at which the bond had priced.

A second trader also saw those new bonds "a little lower," at a bid level around 204 bps over, but said "they tightened back" later on to 201/199, or a dollar price of 99.5 bid, 100.5 offered.

Another trader, also translating the spreads to a dollar price, saw the bonds about 99.5 bid, 99.875 offered, versus their 99.57 issue price.

Traders saw no aftermarket activity in the day's other newly priced deal, CMA-CGM Group's 7¼% notes due 2013, which had priced at par.

Among other recently priced issues, the new Covalence Specialty Materials 10¼% notes due 2016 were seen having firmed smartly to 101.25 bid, 101.75 offered from Thursday's issue price at par, a trader said, while a second saw the bonds at 101.5 bid, 102.5 offered.

Another trader saw RathGibson Inc.'s 11¼% notes due 2014 as having traded at around 100.25 bid, 101.5 offered on Thursday, up slightly from Wednesday's par issue price, but he said that he had seen "not one trade today [Friday]" in the Janesville, Wic.-based tubing and piping supplier's new notes.

And the new Ineos Group Holdings dollar-denominated 8½% notes due 2016, which priced at par on Tuesday, were being quoted Friday at 99.25 bid, 99.75 offered.

InSight plunges

Back among the established issues, InSight Medical "got destroyed," a trader said, quoting the company's 9 7/8% notes due 2011 at 45 bid, 47 offered, down sharply from levels earlier in the week around 67.5 bid, 68.5 offered.

InSight was "way down," another trader said, seeing the 9 7/8s at a wide 45 bid, 50 offered, versus a 65 bid, 67 offered level on Thursday. He also saw the company's senior secured floating-rate notes due 2011 dropping to 89 bid, 90 offered from 93.5 bid, 94.5 offered on Thursday.

"They've got a lot of problems," he said about the company, which filed its 10-Q report for the most recent quarter with the Securities and Exchange Commission on Thursday.

He cited higher gasoline prices "for moving their trucks around" - in addition to its 130 fixed-site centers, InSight has a sizable mobile operations component, with a fleet of 110 mobile MRI units that provide services to hospitals, physician groups and other healthcare providers - as well as generally higher costs, combined with less business.

On top of those already daunting conditions, "there are some Medicare cuts that are going to go into effect this year and in '07 that are going to materially adversely affect the credit.

"It remains to be seen when - or if - they can dig themselves out of these situations," the trader continued. "It sounds like Medicare is going through the general cutbacks across the board of government spending. They [InSight] are getting clamped down, just like Select Medical Corp." The Mechanicsburg, Pa.-based provider of long term medical care's 7 5/8% notes due 2015 had fallen sharply to around 88 bid, 90 offered from 103 previously, about two weeks earlier on investor fears of what scheduled Medicare reimbursement cuts could do to the company's finances. Those Select Medical bonds were still at those some lower levels on Friday.

Another trader saw InSight bonds "down points" on Friday, with the 9 7/8s having fallen from the mid-60s earlier in the week to around 52 bid, 54 offered at Friday's opening. He said that the bonds had then gyrated between an intraday high of 57 bid and a low of 41 before settling in at 45 bid, 47 offered.

He saw the same jerky pattern for the floaters, starting the day at 92 bid, 94 offered and then finishing at 89 bid, 90 offered, down about five points from Thursday's level in the mid-90s.

In its 10-Q report, InSight warned that "the implementation of the reimbursement reductions in the [federal government's Deficit Reduction Act of 2005] will have a material adverse effect on our business, financial condition, results of operations and cash flows."

It noted that for the fiscal year ended June 30, 2005, Medicare revenues represented approximately $32 million, or some 10% of total revenues for that period. If both reimbursement reductions [i.e. the one that went into effect on Jan. 1 and the one slated to take effect next Jan. 1] had been in effect during that period, we estimate that our total revenues would have been reduced by approximately $10.0 million, or 3.2%.

"We would expect to experience comparable reductions in our Medicare revenues in the future when the [Medicare cuts mandated under the Deficit Reduction Act are] implemented," the company concluded.

Radiologix, Alliance Imaging, MedQuest down

A trader, in noting the steep fall in InSight's bonds - he termed that "a disaster" - observed that for the most part, "the action was in the medical area" Friday. "Not much was going on elsewhere."

He saw the 10½% bonds of InSight competitor Radiologix ending at 73 bid, 74 offered, well down from 83.5 bid, 84.5 offered previously.

The 7¼% notes due 2012 of another InSight rival, Alliance Imaging, "were down on the same kind of Medicare reimbursement concerns, the trader said, though "not as bad."

He saw those bonds dip to 78.5 bid, 79.5 offered from prior levels at 82.5 bid, 83.5 offered.

And he said "last, but not least, was this pig called MedQuest," whose 11 7/8% operating company notes due 2012 swooned to 77.5 bid, 78.5 offered from 90 bid, 91 offered the day before, while its MQ Associates zero-coupon/12¼% holding company step-up bonds due 2012 finished at 19 bid, 21 offered - versus "loosely quoted" levels several days earlier around 49 bid 51 offered. However, he called that bond "a small issue" that "doesn't trade much."

The diagnostic imaging companies were "pretty much all of the excitement in the market," with not much happening elsewhere.

Navistar firm

In the automotive sector, news that some Navistar International Corp. bondholders had sent the Warrenville, Ohio-based truck, bus and engine manufacturer a notice of default for alleged failure to make timely reports on its financial condition - a charge that Navistar rejects - caused "no real movement" in the company's benchmark 6 ¼% notes due 2012, which were seen unchanged at 93 bid, 94 offered.

GM little changed

And while there was news out late in the day on General Motors Corp., its General Motors Acceptance Corp. financial unit and its former electronics unit, Delphi Corp. - to the general tune, a trader said, that Citicorp would only be a financial investor in GMAC if its bid with Cerberus Capital to buy control of the unit succeeds, and would not operate the unit itself, and that hourly employees at Delphi seem to be moving closer to a walkout at that company - the trader said that it came too late in the session to have more effect. He said, however, that come Monday, the bonds likely will widen.

GM's 8 3/8% notes due 2033 were down ¼ point in quiet trading at 74 bid, 74.5 offered, while GMAC's 8% notes due 2031 were also a quarter-point easier at par bid, 100.5 offered.

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